Should I Rent Or Buy A House?

by PF Guy on October 27, 2010

The age old question of should you rent or buy a house? Ask yourself the following questions to help figure out which route is better for you.

1. How much mortgage can you afford?

There is a very good chance that you may qualify or be able to afford much less of a mortgage then you think. Multiply your gross income by 30% and then divide it by 12. That will give you a good estimate on how much of a mortgage payment you can afford. Now, that number may be much less than you though and therefore renting may be the best option for you right now.

2. How long do you plan on staying?

If you do not plan to stay in the house you buy for more than 5 years then you should most likely continue to rent. Why? Because if you decide to sell a house in the first 5 years you are likely to take a loss on it because you have not built up enough equity to recover the costs of selling.

3. How expensive is home ownership in your area?

Many potential buyers look at just the cost of the house and say “Yeah we can afford that”. Oh you silly property virgins. Home ownership also brings other bills like property taxes, home owners insurance and upkeep and repairs. You want to make sure and check out property tax rates in your area before deciding if you can afford to buy. After you get a clear picture on the “real cost” of buying a home you may be best to continue to rent.

4. How much do you have for a down payment?

The days of buying a home with $0 down are fading fast. In many cases you may need to put down as much as 20% of the purchase price. If you do not have any or enough money to cover a down payment you may want to consider continuing to rent until you can save enough.

Owning a home is a the American Dream but you shouldn’t blindly rush into it. Get a clear picture of the costs, write out a budget to see how much you can truly afford and get a clear understanding of how much it will actually cost before rushing in. There is nothing wrong with renting if the alternative is living with immense stress of trying to make your mortgage payment each month.

Personal Finance Guy..out.

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How Much Mortgage Can I Afford?

by PF Guy on October 21, 2010

One of the most common questions people have is “How much mortgage can I afford?”

While there is no easy rule of thumb on this one because it also depends on how much other debt and bills you have…here is the best guideline I can give:

No more than 30% of your income should be used to for your mortgage payment.

Here is a simple equation to get your appropriate amount:
(Gross Yearly Income X 30%) divided by 12.

For example, if you make $100,000 a year: $100,000 X .30 = $30,000.
$30,000 / 12 = $2,500 mortgage payment.

Again, you should also take into consideration your other bills and debt. So if you make $100,000 a year and drive a Ferrari…you probably can afford a $2,500 mortgage payment.

No one wants to end up house poor so I urge you to always try to be reasonable when looking for a new home!

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What Is The Benefit Of A Roth IRA vs A Traditional IRA?

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What Is The Penalty For Cashing Out My 401k?

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When most people leave a job they get that itch to just take their 401k in cash and go get crazy at the Mall.  Bad idea!  If you take your 401(k) as cash your employer is required to withhold 20% of your pre-tax contributions and earnings (your actual tax rate may be higher).  In addition [...]

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